Crypto exchange Kraken being charged for securities violations

By: Dickson Arinze

February 9, 2023 6:07 AM

The investigation is apparently looking into various offerings made by Kraken to its US consumers that may have violated securities laws.

The US Securities and Exchange Commission is apparently investigating cryptocurrency exchange Kraken to see if it violated securities offering rules.

According to a Bloomberg article on February 8, the investigation is related to specific services made by Kraken to US clients. According to a source familiar with the situation, the investigation is nearing completion and a resolution could be reached in the coming days.

However, it is unclear whose offerings are being reviewed by the securities authority at this time.

"The SEC does not comment on the existence or nonexistence of a possible inquiry," an SEC spokesperson said when questioned about the alleged probe.

Kraken did not reply immediately to a request for comment.

In December, Gensler stated that his major goal for regulating cryptocurrency through 2023 was to bring crypto exchanges and lending platforms into compliance, which he stated might happen by firms registering with the SEC or through enforcement actions.

Kraken CEO Dave Ripley stated in September that registering Kraken as an exchange with the SEC was unnecessary since it does not offer securities, adding, "There aren't any tokens out there that are securities that we're interested in listing."

However, SEC Chairman Gary Gensler has stated repeatedly that he views most cryptocurrencies other than Bitcoin (BTC ) to be securities.

The SEC, on the other hand, recently conceded during a Jan. 30 appeal hearing in the LBRY v SEC case that the sale of LBRY Credits (LBC) in the secondary market does not constitute a security, after the judge was persuaded by an argument from attorney John Deaton highlighting that courts in similar cases had never deemed the underlying asset to be a security.

The "Howey test" is frequently used by the regulator to assess what defines a security. The name is derived from the 1946 SEC v Howey case, which established a precedent in the United States for what transactions are considered securities.

It concluded that a transaction qualifies as an investment contract — and so as a security — when there is an investment in a joint venture with profits gained only through the efforts of others.